How to get next property

Question

I bought my first house in PA in 2008 for 75k and just refinanced it in October using a VA loan now it's rented for 523 a month and my mortgage is 437 I owe 65k on this property

In May I bought a 4 unit complex in Colorado and put down 60k on a 240k property that I have only been able to rent 3 out of the 4 units for the last year so it's paying the bills but not cash flowing a lot

When I got back from Afghanistan in June of last year I got my real estate license in Vermont because I wanted to learn how others were making deals...I'm beginning to think the money isn't in being an agent it's in having a team of agents? I'm about to have my first baby! So need to get my legacy cranked up

I changed careers so I can't get another loan until I have two years in the same career so I'm stuck renting...

I can't get financing because the houses are in different states... Any ideas on what I should be doing to get to the next level? Or buy more properties that can cash flow or break even

I want to buy another property what would you do?

What is the next step to buying another property?

Brant Richardson · Answer

You just took an excellent first step.  You found and actually posted on Bigger Pockets.

You posted a lot of information which needs more detail and asked a lot of questions.

75k for a property that rents for $523.  This is a bad investment.  I don't know what you had in it before but you probably just financed it into a cash flow negative property.  Sell it before it hemorrhages more from you.

Do you have a property manager for your 4 plex in Colorado?  If you do, fire them.  If not, get a property manager.  Either way, you need a property manager. Start a new thread asking about PM's in you town.

Good job getting your license.  Learn to be an awesome agent.  In the process you will learn your market inside out, recognize a great deal and have the opportunity to swoop in early.

Your properties being in different states has no bearing on your financing, its your track record.  You have a cash flow negative property, a 4 plex that's only 3/4 rented and a new career.  Cash?  Credit score?  Debt to income ratio?

Next steps - sell bad investment.  Show you are an affective land lord and turn your 4 plex around.  Make money as an agent and learn your market.  save every possible penny.  Build your credit score. Make your debt to income better by paying down debts and getting rid of the first property.

Your best first step was coming here.  Bigger Pockets is an awesome resource full of professionals willing to give their advice for free.

Brant Richardson · Answer

I calculate cash flow as rent 532 minus known expenses (P&I 300-350, taxes 100?, insurance 50?) minus expected expenses (10% of rent for maintenance 53, 10% for vacancy 53, property management?) .  $53/mo for maintenance might not even be enough, my 10% rule kind of breaks down with a low rent.  If you have one major expense like a new roof you would go through a lot of months worth of savings.

The 50% rule would predict negative cash flow. 532/2 minus P&I.

The plumbing issue is a bummer but I still think you would be better off getting out of that house. This would improve your debt to income ratio.That credit score of 810 was awesome, build it back up  I would try talking to a smaller bank or credit union about a loan.  Maybe a duplex that you occupied half of would work.

What's the problem with the 4 plex that keeps one unit vacant?  Who is managing it?   Professional management charges 10% of rent and is tax deductible, your vacancy is costing you 25% of rent.

Mitchel Durfee · Answer

I contacted an agent in pa to pull comps and I am considering selling thanks!

Brant Richardson · Answer

This would still be considered negative cash flow because you have to feed the investment every month.  It certainly feels better knowing equity accrual is exceeding your negative cash flow though.  I would consider this an appreciation play and would hold it only if I felt strongly that there was going to be appreciation in the area.  In which case you could wait to sell it for a year or two while you get experience in your new career and get the credit score back up to its former glory.

If you talk to small banks or credit unions you might find somebody who will work with you.  You need to come in and give a well thought out presentation on a solidly cash flow positive property you want to purchase.

Adrian Tilley · Answer

@Mitchel Durfee As your math shows, you are cashflowing negative at least $35/month.  If you take principal paydown into consideration, you may, as you say, "make" a few bucks/month.  However, tenant damage/capital expenses/one extra month vacancy could wipe that out quickly, and even without unexpected expenses, you're still paying to keep the property.

Whether you bail or keep it is up to you.  If you have any signfiicant equity, you might consider turning it into a flip.

If you're not familiar with the 50% rule as stated by Brant, it says that generally you can expect 50% of your gross rent to be spent on taxes/insurance/maintenance/vacancy/PM/cap ex/tenant damage, etc.  So you have 50% to spend on P&I.

Good luck and congrats on taking action.  That's more than 99% have done.

Mitchel Durfee · Answer

@brant richardson

Thanks for the tips on the break down of expenses

Using your formula:

cash flow: rent is actually 595 minus known expenses (P&I , taxes, insurance $440) minus expected expenses (10% of rent for maintenance $60, 10% for vacancy 60, property management 70) .

595 -440 = 155

155 - 190  (60-60-70) = - $35

the only thing I would keep in mind is that the property is paying my principle down by 82.50 per month.

So would I be wrong to think that after all the factors it is still making 47.50 per month for the time being?

Brandon Turner · Answer

Hey @Mitchel Durfee thanks for introducing yourself! It's great to have you here! Don't miss The BiggerPockets Podcast - they are great for learning how others are finding success.

Oh - and be sure to set up some Keyword Alerts- especially for "South Burlington" so you'll be notified when people mention it here in the forums.

Thanks again for introducing yourself!

Mitchel Durfee · Answer

Firstly I am very grateful for your prompt response, I really hope to use these tools to help me accomplish my dreams in real estate.

The 75k property in pa was a 0% financing VA home loan. It makes 80$ a month after insurance and taxes. Plus principle pay down.

I Changed careers so even if I sold the PA house I wouldn't be able to get financing for another 2 years because of under writing. Is there a way that I can get into a new home if I sold my PA house?

Cash? 20k  Credit score? 715  Debt to income ratio? I have 300k in mortgage loans 20k in car loans and I make 65k a year. The two houses I own, essentially break even.

My Credit score was 810 before I bought the Colorado house in may 2013 and Refinanced the PA house in october, and I bought a new car in December (for a new business) I also opened up 3 business credit cards. So my score has been hit pretty hard due to the amount of inquires I have had in the last 2 years. I did this on purpose to restructure. The banks aren't lending unless you have 2 years in the same career field so I took that as an opportunity to make all the adjustments now so that in 2 years when they finally decide to lend I'll be okay to go. I have 20k cash in hand and another VA home loan option.

Selling the property in pa has crossed my mind. The issue is that in order to sell the house in PA the city has passed a law saying you need to update the plumbing in the house before you can sell. at the cost of about $3000 to update.

How to get next property

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